Gold futures rise as dollar falls, oil hits record high

Metal gains nearly $30 on the week, but one analyst warns of correction

JoyceKoh

NEW YORK (MarketWatch) -- Gold futures surged above $930 an ounce Friday as a record high in crude oil, persistent weakness in the U.S. dollar and a recent plunge in the U.S. stock market encouraged investment demand for the precious metal.

Gold for August delivery rallied $16.20 to end at $931.30 an ounce on the New York Mercantile Exchange.

The precious metal posted a weekly gain of $27.60 from last Friday's closing level of $903.70.

"There seems to be no end to the capitulation taking place in the equities markets which should provide all the fuel necessary for a breakout in gold," said Dale Doelling, chief market technician at Trends In Commodities, who predicts gold prices will breach $940 on Monday.

"Fear of the unknown is what's driving these markets," Doelling said. "Will recession lead to stagflation or, even worse, will deflation lead to depression? Either scenario will create serious havoc and help to accelerate the unraveling of financial markets."

'Both paper oil and gold will face serious corrections sometime in the second half of the year.'
Ned Schmidt, Value View Gold Report

Crude-oil futures climbed to a fresh record of nearly $143 a barrel in Friday afternoon on Globex, a weekly gain of more than 5%. See Futures Movers.

Side step

"The mania in paper oil is in full control," said Ned Schmidt, editor of the Value View Gold Report. But, he added that "gold investors should step aside during this paper-oil induced move."

"Both paper oil and gold will face serious corrections some time in the second half of the year," Schmidt warned in emailed comments.

Analysts at Action Economics said for now, "record oil prices encourage ongoing investor demand as a hedge against inflationary pressure, which sees the $930 resistance as a potential near-term target."

Gold is likely to regain $1,000 an ounce by the end of 2008 and work higher through 2009-2010, said John Hill, an analyst at Citigroup, in a research note.

Peter Spina, an analyst at GoldSeek.com, was more bullish, saying gold will spike to $1,200 or higher in the next three to six months. "I am sure it will quickly build up here...All the ingredients are in place."

Front-month gold futures reached a record of nearly $1,034 in mid-March.

Gold, like crude oil, has been boosted by persistent weakness in the U.S. dollar. On Thursday, it broke through a trading range barrier it had been stuck in since late May and many analysts predict that prices will soon return to record levels. See Commodities Corner.

Dollar dance

The dollar was flat to modestly lower against major currencies Friday, with increasingly risk-averse traders unwilling to buy the greenback as oil futures marched to new highs and equities lost ground.

The dollar index
DXY, -0.22%
which tracks the performance of the U.S. currency against other major counterparts, was at 72.294 compared with 72.48 in late North American trading Thursday. See Currencies.

With the Federal Reserve leaving its key interest rate unchanged at 2%, market watchers say this increases gold's value as a hedge against inflation.

On Wall Street, U.S stocks fell Friday, with the Dow Jones Industrial Average
DJIA, -0.74%
unable to bounce back a day after the market plunged nearly 400 points. See Market Snapshot.

As July 3 approaches, the European Central Bank is "expected to do that which the Fed currently won't," said Jon Nadler, a senior analyst at Kitco Bullion Dealers, implying that the ECB will soon rate interest rates.

"The dollar continues to have problems on the index and against the euro," he said in a note to clients. "The footprint of momentum hedge funds is wide and deep in these markets and the massive amount of money being tossed around simply bends various commodities out of any recognizable shape."

Among other metals traded on Nymex, September silver futures rose 49 cents to end at $17.71 an ounce, while July platinum fell $9.70 to end at $2,059.10 an ounce.

September palladium finished virtually unchanged at $471.20 an ounce compared with Thursday's settlement of $471.25. September copper futures rose 5 cents to $3.88 a pound.

The SPDR Gold Trust
GLD, +0.02%
climbed by 1% to close at $91.47 and the Market Vectors-Gold Miners ETF
GDX, -0.28%
rose 4% to finish at $48.29. The iShares Silver Trust ETF
SLV, -0.06%
rose 1.8% to close at $173.30.

Intraday Data provided by SIX Financial Information and subject to terms of use. Historical and current end-of-day data provided by SIX Financial Information. All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only. Intraday data delayed at least 15 minutes or per exchange requirements.